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Another Open Letter to Oren Cass

Mr. Oren Cass
American Compass


Although I’m not on Twitter X, a friend shared with me a thread that began with you criticizing Deirdre McCloskey’s attempt, by using the example of different ice-cream flavors, to explain the importance of the information conveyed by competitively set prices. Several commenters on your thread astutely pointed out flaws in your interpretation of Deirdre’s explanation. But there’s another flaw that I think was not flagged, at least not explicitly – to wit: Listening in a fair and open-minded manner to Deirdre’s explanation would have immediately revealed that her core point is not about different ice-cream flavors but about differences in consumer preferences for goods and services. For example, if consumers’ tastes in desserts switch more in the direction of ice cream (of any flavor) and away from (say) sorbet, they’ll buy less sorbet and more ice cream. The relative prices of ice cream and sorbet will change – specifically, the price of ice cream will rise and that of sorbet will fall. This change in relative prices will both inform and incite producers to produce more ice cream and less sorbet.

Take note that, as some of the commenters on your thread realized, the final result might be that the price of ice cream and of sorbet will wind up the same. How close or far these two prices are from each other after the market adjusts to the change in consumer preferences is irrelevant to Deirdre’s point, which is that changes in prices, and the existing pattern of relative prices, are indispensable sources of information about how scarce resources should be allocated.

The above misunderstanding would normally not be worth calling out. But in your case it is. The reason is that, while those of us who oppose industrial policy point to specific sources of information (prices, and profits and losses) that the market accesses and uses to allocate scarce resources, you have yet to tell the world where the industrial-policy mandarins who you propose to empower to override market signals will get the information they will use to allocate resources and how these mandarins will then process and act on this information, and why you believe that the information gathered and acted on by industrial-policy mandarins will be more reliable than are market prices as a guide for satisfying the enormous, diverse, and often changing range of human desires.

Like many people, you excel at finding flaws in market outcomes (some of which flaws are real, many of which are imaginary, and others of which seem to reflect only your own preferences that you then project onto millions of your fellow Americans). But identifying flaws in market processes, even only real ones, is not sufficient to justify overriding the market with government interventions. You must also show that your proposed interventions will plausibly result in better processes, or at least in processes that aren’t worse. To succeed in this latter task, you must – I repeat – identify how government officials will get the information they will need to outperform the market. Until you do so, you ask us to take on faith that government will achieve what you claim it will achieve. With the market, no such faith is needed. Theory and history supply ample justification for its continued operation.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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